The Week That Was
One of the most volatile weeks in the forex markets since the SNB removed the EURCHF peg in January this year. The action was principally driven by the after shocks of the Chinese Yuan devaluation and the far reaching effects on global risk sentiment. The sell-off in global equities came on the back of concerns about global growth that was triggered by a violent swing to safe-haven plays as a result of the global growth concerns driven by China; which in turn was driving rising expectations of a US Fed fund rate hike delay.
These concerns sparked a sell-off in the risk assets, this in turn led traders to seek safe-havens in currencies like the JPY, pushing the USDJPY sharply lower and in turn driving demand for EURUSD as the funding currency trade unwound in dramatic fashion at the beginning of this week with the single currency trading above 1.17 Monday.
Yesterdays release of robust Q2 US GDP data has helped stabilised market sentiment and underpin the rebound witnessed in global risk sentiment since Tuesday. Todays weaker than anticipated University of Michigan sentiment report has done little to impact the rebound in risk and the USD rally from Tuesdays’ turnaround. All eyes will be on Wyoming this weekend and headline speakers a the Jackson Hole Symposium, with FED Vice Chair Stanley Fischer speaking tomorrow.
- USD Traders were whipsaws this week in extremely volatile summer market conditions after selling off heavily Monday the USD has recovered supported further as risk
sentiment recovered off the back of strong 2Q GDP data.
- EUR EUR remains a “funding currency” play – risk off sees EUR higher while risk on sees EUR lower. After soaring higher against the dollar as investors worried about the slowdown in China and switched to the low-interest rate currencies the pair surged to 1.1711 before surrendering more that 50% of its gains over the second half of the week.
- GBP was relatively stable amid the global panic, edged higher to 1.5818 but dropped after an upbeat US consumer confidence strengthened USD. Traders have pushed back the UK rate hike expectations amid the devaluation of China and further signs of domestic weakness.
- JPY traded to a seven month high against the USD at the beginning of the week amidst the global sell off in risk sentiment, JPY was sought out as a safe haven play. Since the reversal in risk appetite and the subsequent upbeat US data releases JPY has given back over 50% of its gains this week.
- AUD fresh six year lows of 0.7051 recorded in very illiquid conditions Monday, driven by uncertainties about a slowing Chinese economy spreading and having the greatest impact on the Australian currency seen by many as a China proxy play.
- CAD printed eleven year lows against the USD, as crude prices plummeted as much as six percent Monday. The price of crude fell as low as $37.75 a barrel, suffering its largest declines since 1986, before staging a sterling recovery yesterday of 10% yesterday. The stabilisation in crude prices has helped stem the decline in the CAD.